The four things lenders check before they say yes
Banks decide whether to lend you money for a house by looking at four concrete things: your credit score, your income and debt, how much cash you have for a down payment, and the value of the house itself. You do not need perfect numbers in all four areas—lenders have different standards—but you need to be solid enough in most of them that the bank believes you will pay the loan back.
This is not a judgment of your character or your ability to manage money over time. It is a calculation of risk. A lender is betting that you will make monthly payments for 15 to 30 years. They want to know the odds are in their favor.
Key Takeaways
- Most lenders want a credit score of at least 620, though 740 or higher gets you better interest rates and lower monthly payments.
- Your debt-to-income ratio—the percentage of your monthly income that goes to debt payments—usually needs to be 43 percent or lower.
- Down payment requirements vary from 3 percent to 20 percent of the house price, depending on the loan type and your credit score.
- The house itself has to be worth at least what you are borrowing, which is why lenders order an appraisal before they commit.
- Getting pre-approved by a lender before you house-hunt tells you what price range is actually within reach for your situation.
Credit score: what number you need and why it matters
Your credit score is a three-digit number that summarizes your history of borrowing and repaying money. It comes from three major credit bureaus—Equifax, Experian, and TransUnion—and ranges from 300 to 850. The higher the number, the less risky you look to a lender.
Most conventional lenders want a score of at least 620 to consider you for a mortgage. However, the score you have determines the interest rate you get offered. A score of 620 to 639 might get you an interest rate that is 1 to 2 percentage points higher than someone with a 740 or above. On a $300,000 loan, that difference adds up to tens of thousands of dollars over the life of the loan. If your score is below 620, some lenders will still work with you, but the rates climb higher, or you may need a larger down payment to offset the risk.
You can check your own credit score for free once per year at annualcreditreport.com, which is the only site the federal government officially maintains for this purpose. You can also get free scores from many banks and credit card companies through their websites.
Income and debt: the debt-to-income ratio lenders use
Lenders want to know that your monthly debt payments do not consume so much of your paycheck that you cannot afford the mortgage itself. They measure this with your debt-to-income ratio, which is the percentage of your gross monthly income (before taxes) that goes to debt payments each month.
Most lenders will not go above 43 percent. That means if you earn $5,000 per month before taxes, your total monthly debt payments—including the new mortgage payment—should not exceed $2,150. This includes car loans, student loans, credit card payments, child support, and any other regular debt obligation. The mortgage payment itself is usually the largest piece.
If your debt-to-income ratio is already high because of student loans or car payments, you have two paths: pay down existing debt before you apply, or look at a lower price range for the house so the mortgage payment itself is smaller. Some lenders will go slightly above 43 percent if your credit score is very strong or if you have substantial savings, but this is not standard.
Down payment: how much cash you need upfront
The down payment is the cash you put toward the house price on the day you close the sale. The rest comes from the loan. Down payment requirements vary depending on the type of loan and your credit score.
Conventional loans—the most common type—typically require 5 to 20 percent down. Federal Housing Administration (FHA) loans, which are designed for first-time buyers and people with lower credit scores, allow down payments as low as 3.5 percent. Veterans Affairs (VA) loans, available to military members and veterans, often require zero down. If you put down less than 20 percent on a conventional loan, you will also pay private mortgage insurance (PMI), which is an extra monthly fee that protects the lender if you stop paying. PMI typically costs 0.5 to 1 percent of the loan amount per year.
The down payment comes from your own savings. Lenders want to see that you have managed to set aside this money, because it shows you can save and plan. Some programs allow gifts from family members to count toward the down payment, but you will need to document where the money came from.
The house appraisal: why the property itself matters
Before a lender commits to lending you money, they order an appraisal—an independent assessment of what the house is actually worth. If you are buying a house for $350,000 but the appraisal comes back at $320,000, the lender will only lend you 80 percent of the appraised value (or whatever their standard is), not 80 percent of the purchase price. This protects the lender from lending more than the house is worth.
If the appraisal is lower than the purchase price, you have a few options: renegotiate the price with the seller, put down more of your own cash to make up the difference, or walk away from the deal. The appraisal is paid for by you (usually $400 to $600), but it happens after you have made an offer and the seller has accepted.
Getting pre-approved: the first concrete step
Before you start looking at houses, contact a lender and ask for pre-approval. This is not the same as pre-qualification, which is just a rough estimate. Pre-approval means the lender has actually looked at your credit report, verified your income, and confirmed they will lend you up to a certain amount.
To get pre-approved, you will need to provide recent pay stubs, tax returns from the last two years, bank statements showing your down payment savings, and permission for the lender to pull your credit report. The process usually takes a few days to a week. Once you have pre-approval in writing, you know what price range is realistic for your situation, and sellers take your offers more seriously because they know the financing is likely to go through.
Pre-approval is valid for 60 to 90 days, depending on the lender. If you do not find a house in that time, you can ask for another pre-approval, which will pull your credit again (multiple pulls in a short window count as one inquiry, so do not worry about applying to several lenders at once).
What happens if you do not meet the standard numbers
If your credit score is below 620, your debt-to-income ratio is above 43 percent, or you do not have enough for a down payment, you still have options. FHA loans are more flexible on credit scores and down payments. Some lenders specialize in working with people who have recent credit problems or higher debt loads. Credit unions sometimes have different standards than banks.
You can also improve your situation before you apply. Paying down credit card balances or car loans lowers your debt-to-income ratio immediately. Paying bills on time for several months can raise your credit score. Saving more for a down payment reduces the amount you need to borrow. None of these happen overnight, but they are concrete steps that change what lenders will offer you.
Frequently Asked Questions
Do I need a perfect credit score to get a mortgage?
No. Most lenders will work with scores as low as 620, though you will pay higher interest rates. Scores above 740 get the best rates. If your score is below 620, FHA loans and credit unions are worth exploring, but expect higher costs.
What if I have student loan debt—does that disqualify me?
Student loans count toward your debt-to-income ratio, but they do not automatically disqualify you. If your total monthly debt payments (including the new mortgage) stay at or below 43 percent of your gross income, you can still be approved. If student loans push you over, paying some down before you apply helps.
Can I use a gift from family for my down payment?
Yes, most lenders allow this. You will need a letter from the family member stating the money is a gift, not a loan you have to repay. The lender wants to confirm it does not add to your debt obligations.
What is the difference between pre-approval and pre-qualification?
Pre-qualification is an estimate based on information you provide—no verification. Pre-approval means the lender has checked your credit, income, and assets and confirmed they will lend you a specific amount. Pre-approval is what matters when you make an offer.
If the appraisal is lower than the purchase price, do I lose my down payment?
No. You can renegotiate the price, put down more cash, or walk away. Your down payment is held in escrow until closing, so if the deal falls through for an appraisal issue, you get it back (minus any inspection or appraisal fees you already paid).